Welfare changes need a prod along

In its attempts to reform the welfare system, the Government is a bit like some of its clients on income support who find it hard to get out and look for work. It has lost momentum and fallen into a certain listlessness.

Further change has become too hard, too costly and likely to produce too many losers. As for Employment Minister Tony Abbott's dream of mega reform - a dual welfare-tax overhaul - well, John Howard has put his foot firmly down on such grandiosity.

Nevertheless, Cabinet will consider the related and endlessly canvassed "work and family" agenda before next year's budget, and the Government still has various groups beavering away on the welfare front.

One is the Welfare Reform Consultative Forum, chaired by Abbott and Amanda Vanstone, the Family and Community Services Minister. This includes public servants and non-government welfare experts and public servants. The latter come from a broad spectrum; they include Elaine Henry, CEO of the Smith Family, Peter Hendy, from the Australian Chamber of Commerce and Industry, David Thompson, CEO of Jobs Australia, the national peak body for non-profit providers of employment services, David de Carvalho from the National Catholic Education Commission, and Professor Peter Dawkins from Melbourne University. Dawkins was on the McClure review, which set out a national (some would say fading) blueprint for getting a system that encouraged people off welfare and into work and other forms of participation.

The non-Government members plan to soon present to government a statement which, while not pushing the maxi-change line, is blunt about the need for more action, and soon.

One interesting line to come through from focus group research and roundtable discussions done for the forum is that those on welfare are less concerned about being forced into some form of participation than are many of the groups that speak for them. In discussions, people on income support acknowledged the need for sticks as well as carrots.

Many people, though, find the complexity of the system, with uncertainty about where they'll be financially, a discouragement to making the effort to work.

The interplay between taper rates, asset tests, income tax, waiting periods and health card status and on top of that the costs associated with work "means that the degree of uncertainty about how much additional money one would have in the pocket at the end of the day acts as a disincentive to take up additional paid work, or any paid work."

"For people on low government-supported incomes, often a stable, predictable level of income is preferable to an uncertain level of income, even though, temporarily, it might be higher than what they are getting now," the draft statement says.

"This acts as a disincentive for many to take up part-time or casual work, particularly if they are not certain how long it will last."

The uncertainty is made worse when high effective marginal tax rates mean extra effort will probably not bring its just reward.

Today's system doesn't make it easy for people to go from one phase of their life to another, the paper says. Nor - John Howard note - does it encourage stable family relationships. Yet these are what people trying to get jobs need.

"Stable family relationships of themselves often provide a solid base from which an individual can more confidently take the risks associated with moving into the workforce. But the current system provides no financial incentives for partnering, in fact sometimes it does the opposite."

Cases came up in the focus groups where couples were better off financially either not declaring they were partners or separating.

"This is plainly a perverse outcome encouraged by the current payment structure."

Indeed, present arrangements are actually providing increasing incentive to be a sole parent.

In 1996, a sole parent received about 65 per cent of the income support that was paid to a couple. Now it is 75 per cent. By 2010, a sole parent could receive 81 per cent of the income support paid to a couple.

"The size of the differences in assistance is now undermining the integrity of the 'marriage-like relationship' test and threatens public support for the system. The consultations revealed widespread knowledge and acceptance of misreporting of relationship status."

The draft statement strongly supports the concept of a simplified payment structure, with a base rate and particular adjustments, although with some caveats. This was McClure's proposal.

But there would be pain for the government, because it would have to align pensions and benefits, which are linked to different indices.

Equally, there is pain in delaying action. "There is some urgency to address this issue. Because of the more generous indexation arrangements for pensions, the longer reform is delayed the greater the divergences in the rates of payment and the more costly it will be, either financially or politically and quite possibly both, to fix.

"In a few years' time the partnered rate for pensioners will exceed the single rate for single allowees, which is a bizarre outcome.

"Clearly the current level of payment to single allowees is a concern in terms of adequacy."

The draft statement touches on the possible use of earned income tax credits to encourage more employment of low-skilled workers, But this idea, previously floated by Abbott, has been firmly squashed by Howard.

Sources say one hot button issue with Howard is the situation of jobless families where there are children.

In general, however, welfare reform and the more electorally sexy work and family agenda are sets of issues that look much more complicated than when the Government first started rushing towards them. Howard's difficulty is that neither can be swept under the carpet. Some decisions, and probably quite a few non-decisions, have to be made before next year's election. mgrattan@theage.com.au